More than 200 foundations from 42 states (including the District of Columbia) on Monday urged leaders in Congress to pass legislation that would simplify the nation’s tax system and make it easier for the philanthropic sector to devote more resources to giving.
In a letter sent to Congressional leaders, the diverse coalition – including the C.S. Mott Foundation, The W. K. Kellogg Foundation, Robert W. Woodruff Foundation, Inc., The Nathan Cummings Foundation, Rasmuson Foundation and the Council of Michigan Foundations – said the change will enable foundations to focus more on meeting the growing needs in communities across the country.
“The current tax on private foundation investment income is needlessly complicated, requiring foundations to calculate and recalculate asset balances, investment income, and expenditures as often as once every month,” the letter said. “Foundation resources that could be going toward grants and programs to improve our communities are instead spent on accountants and lawyers working to ensure tax compliance.”
Foundations are subjected to a two-tier excise tax system that often serves as a disincentive to increased giving, especially during times of crisis or economic turmoil. The proposed modification will institute a revenue-neutral, single flat rate for all private foundations without reducing federal tax revenue.
The letter continued, “The current system also punishes foundations with higher taxes for responding to extraordinary community need. This can happen when a foundation maintains its grant levels even as its assets fall sharply. It also can occur when a foundation increases spending in response to a crisis such as an earthquake, oil spill, or an economic collapse. In such instances, foundations subject themselves to paying higher taxes in the future because they responded to needs today.”
The Council on Foundations, which coordinated the coalition of family, private, and independent foundations, has been advocating for the reform for several years.
The bipartisan legislation (S. 676/H.R. 4090), introduced by Senators Charles Schumer of New York, Richard Burr of North Carolina, Carl Levin of Michigan, and Debbie Stabenow of Michigan, along with Representatives Danny Davis of Illinois, John Lewis of Georgia, and Patrick Tiberi of Ohio, takes into account the current fiscal constraints placed on Congress and the rest of the country by establishing a revenue-neutral-tax rate. It was set by the Joint Committee for Taxation at 1.39 percent for foundations. The modified rate, which would initially last for a period of five years, would allow private foundations of every size to simplify their tax planning in the short term but also operate more efficiently in the long term.
For a full list of the foundations that signed the letter, click here.